From the start of World War II until 1950, and from 1962 to 1970, the value of the Canadian dollar was pegged against the US dollar. The Bank of Canada was responsible for intervening in the market to maintain the currency's fixed value.
Currently, the exchange rate between the Canadian dollar and foreign currencies is determined by the forces of supply and demand. In other words, it is similar to the value of other openly traded goods and services. Factors that increase (or decrease) demand for Canadian dollars or decrease (or increase) demand for foreign currencies will exert upward (or downward) pressure on the exchange rate.
Economic theory and empirical evidence identify factors that alone have a predictable impact on exchange rates. However, these factors work together, making it difficult to predict exchange rate movements. The reasons for recent movements often become apparent only later. The most important factors known to affect the value of
Canadian Dollar: However, the rate of return for foreign investors depends on the expected future performance of the Canadian dollar. Foreign investors charge higher interest rates on Canadian dollar securities when they expect the Canadian dollar to fall in value.
Commodity Prices: The value of the Canadian dollar correlates with the strength of global commodity prices. Commodities make up a large percentage of Canada's exports compared to the United States and many other countries. As commodity prices rise, trading conditions in Canada improve as commodities become relatively more valuable.
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